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[Note: Posted simultaneously at www.thestocksurfer.blogspot.com, with Monday Night Football theme music and charts.]
The NFL football season begins today, and thank God for that. Since the Olympics, my TV has been a wasteland of political conventions and reruns. Well, it hasn't been that bad--The Hills is back on MTV and college football had some interesting games, but nothing compares to the NFL.
Just as the pros are back on the field in football, professional traders are back from their vacations and the markets are taking on a new intensity. It won't be easy, so get your game face on. There will be winners and losers.
I'm not a doom and gloom type guy, but I think the bear market rally that began in mid-July is over and we are headed lower. I also think it's becoming clear that the drop in oil, which continues today, will not spur the market higher. These views will not be new to my readers, but they are finally starting to get some play on the financial news networks. Again, I can't take credit--Minyanville.com was way ahead on the oil call.
So what to do now?
I haven't been doing much in recent weeks. My trading positions on the long side have all been sold, so I have a lot of dry powder. I think shorting season is beginning again, so I'm starting to ease into positions where the risk-reward makes sense. It seems to me that small caps are due for a drop as investors realize the worst is not behind us. An unusual (as far as I can tell) divergence has occurred between the small caps and the large caps. Since mid-May, the small caps have outperformed the S&P by a wide margin (more than 10%). Here is a link to a chart showing the divergence. There are several possible explanations for this (a stronger dollar, small caps lead a recovery, etc.), but I'm not buying any of them. Instead, I'm buying the Ultrashort Russell 2000 (TWM). I'm betting this gap will close, and that small caps will fall harder than their bigger brethren.
That's all for now--play hard out there, the games count.
Disclosure: Long TWM.
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